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AphriaInc.
CONDENSEDINTERIMCONSOLIDATEDFINANCIALSTATEMENTS
FORTHETHREEMONTHSANDNINEMONTHSENDEDFEBRUARY28,2017andFEBRUARY29,
2016
(Unaudited,expressedinCanadianDollars,unlessotherwisenoted)
NoticeofNoAuditorReviewofInterimFinancialStatements
UnderNationalInstrument51-102,Part4,subsection4.3(3)(a),ifanauditorhasnotperformedareviewoftheinterim
financialstatements,theymustbeaccompaniedbyanoticeindicatingthatthefinancialstatementshavenotbeen
reviewedbyanauditor.
Theaccompanyingcondensedinterimconsolidatedfinancialstatementsofthecompanyhavebeenpreparedbyand
aretheresponsibilityofthecompany’smanagement.
Thecompany’sindependentauditorhasnotperformedanauditorreviewofthesecondensedinterimconsolidated
financialstatements inaccordancewithstandardsestablishedbytheCanadian InstituteofCharteredProfessional
Accountants.
AphriaInc.
CondensedInterimConsolidatedStatementsofFinancialPosition
(Unaudited)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements
2
February28, May31,
Note 2017 2016
ASSETS
Currentassets
Cashandcashequivalents $84,351,132 $16,472,664
Marketablesecurities 5 37,678,063 --
Accountsreceivable 2,039,425 1,778,679
Otherreceivables 6 1,494,703 126,952
Inventory 7 2,654,705 2,088,850
Biologicalassets 8 652,047 697,997
Prepaidassets 429,430 160,156
Promissorynotesreceivable 9 64,150 567,588
129,363,655 21,892,886
Capitalassets 10 40,895,668 7,309,220
Intangibleassets 4,11 2,052,189 4,317,680
Long-terminvestments 12 29,385,266 1,560,200
Goodwill 1,200,000 1,200,000
$202,896,778 $36,279,986
LIABILITIES
Currentliabilities
Accountspayableandaccruedliabilities $4,612,462 $1,266,492
Currentportionofpromissorynotepayable 14 852,112 --
Currentportionoflong-termdebt 15 754,098 --
6,218,672 1,266,492
Long-termliabilities
Promissorynotepayable 14 568,075 --
Long-termdebt 15 6,615,588 --
13,402,335 1,266,492
Shareholders’equity
Sharecapital 16 187,657,471 40,916,880
Warrants 17 444,912 693,675
Share-basedpaymentreserve 20 2,921,827 1,723,903
Deficit (1,529,767) (8,320,964)
189,494,443 35,013,494
$202,896,778 $36,279,986
Natureofoperations(Note1)
Commitments(Note28)
Subsequentevents(Note29)
ApprovedonbehalfoftheBoard
“JohnCervini” “ColeCacciavillani”
Signed:Director Signed:Director
AphriaInc.
CondensedInterimConsolidatedStatementsofIncome(Loss)andComprehensiveIncome(Loss)
(Unaudited)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements
3
Forthethreemonthsended Fortheninemonthsended
February February
Note 2017 2016 2017 2016
Revenue $5,118,516 $2,679,898 $14,720,617 $5,657,613
Costofsales:
Costofgoodssold 1,300,029 591,204 3,052,262 1,401,641
Amortization 10,11 236,175 120,646 717,707 342,905
Neteffectofunrealizedchangesinfair
valueofbiologicalassets
8
14,243
84,823
(520,574)
42,033
1,550,447 796,673 3,249,395 1,786,579
Grossprofit 3,568,069 1,883,225 11,471,222 3,871,034
Expenses:
Generalandadministrative 23 1,230,626 711,153 3,414,936 1,641,987
Share-basedcompensation 19 1,255,976 145,748 1,710,565 405,079
Selling,marketingandpromotion 1,854,577 907,287 5,054,417 2,488,537
Amortization 10,11 263,055 123,644 715,295 198,300
Researchanddevelopment 96,134 79,155 434,098 220,406
Impairmentofintangibleasset 11 3,500,000 -- 3,500,000 --
8,200,368 1,966,987 14,829,311 4,954,309
Income(loss)fromoperations (4,632,299) (83,762) (3,358,089) (1,083,275)
Consultingrevenue 216,667 -- 216,667 --
Foreignexchangegain 65,431 -- 65,431 --
Financeincome,net 22 406,213 86,808 698,484 171,947
Gainondisposalofmarketablesecurities 13,930 -- 13,930 --
Gainonlong-terminvestments 25 8,880,308 -- 9,143,407 --
Gainonsaleofcapitalassets 10 -- 674 11,367 7,125
Netincome(loss)andcomprehensive
income(loss)
$4,950,250 $3,720 $6,791,197 $(904,203)
Weightedaveragenumberofcommon
shares–basic
111,976,759 62,174,289 93,655,328 55,699,999
Weightedaveragenumberofcommon
shares–diluted
118,298,038 84,798,131 99,976,607 75,259,294
Earnings(loss)pershare–basic 26 $0.04 $0.00 $0.07 $(0.02)
Earnings(loss)pershare–diluted 26 $0.04 $0.00 $0.07 $(0.01)
AphriaInc.CondensedInterimConsolidatedStatementsofChangesinEquity(Unaudited)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements 4
Numberofcommonshares
Sharecapital(Note16)
Warrants(Note17)
Share-basedpaymentreserve
(Note20)
Deficit Total
BalanceatMay31,2015 52,479,587 $20,246,095 $556,589 $1,261,589 $(8,718,925) $13,345,348Shareissuance–November2015boughtdeal 8,846,370 9,922,696 477,414 -- -- 10,400,110Shareissuance–CannWaypurchase 3,600,000 4,342,616 -- -- -- 4,342,616Shareissuance–warrantexercise 58,333 70,000 -- -- -- 70,000Share-basedpayments -- -- -- 405,079 -- 405,079Netlossfortheperiod -- -- -- -- (904,203) (904,203)BalanceatFebruary29,2016 64,984,290 $34,581,407 $1,034,003 $1,666,668 $(9,623,128) $27,658,950 Numberof
commonshares
Sharecapital(Note16)
Warrants(Note17)
Share-basedpaymentreserve
(Note20)
Deficit Total
BalanceatMay31,2016 70,053,933 $40,916,880 $693,675 $1,723,903 $(8,320,964) $35,013,494Shareissuance–August2016boughtdeal 17,250,000 31,959,093 -- -- -- 31,959,093Shareissuance–November2016boughtdeal 10,062,500 37,263,475 -- -- -- 37,263,475Shareissuance–February2017boughtdeal 11,500,000 53,869,357 53,869,357Shareissuance–intangibleassetacquisition 38,759 100,000 359,480 -- -- 459,480Shareissuance–warrantsexercised 14,558,932 22,600,975 (608,243) -- -- 21,992,732Shareissuance–optionsexercised 572,596 761,665 -- (310,615) -- 451,050Share-basedpayments 37,500 186,026 -- 1,508,539 -- 1,694,565Netincomefortheperiod -- -- -- -- 6,791,197 6,791,197BalanceatFebruary28,2017 124,074,220 $187,657,471 $444,912 $2,921,827 $(1,529,767) $189,494,443
AphriaInc.CondensedInterimConsolidatedStatementsofCashFlows(Unaudited)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements 5
Ninemonths
endedNinemonths
ended February28, February29, Note 2017 2016Cashprovidedby(usedin)operatingactivities: Netincome(loss)fortheperiod $6,791,197 $(904,203)Adjustmentsfor: Amortization 10,11 1,433,002 541,205Amortizationoffinancefeesonlong-termdebtImpairmentofintangibleassets
11
3,3333,500,000
----
Gainonsaleofcapitalassets 10 (11,367) (7,125)Gainondisposalofmarketablesecurities (13,930) --Gainonlong-terminvestments 25 (9,143,407) --Dispositionandusageofbearerplants 10 63,501 --Share-basedcompensation 19 1,710,565 405,079Changeinfairvalueofbiologicalassets 8 (520,574) 42,033Changeinnon-cashworkingcapital 24 1,432,868 (1,412,030) 5,245,188 (1,335,041) Cashprovidedbyfinancingactivities: Sharecapitalissued,netofcashissuancecosts 16 123,091,925 10,314,726Sharecapitalissuedonwarrantsexercised 17 21,992,732 70,000Sharecapitalissuedonstockoptionsexercised 20 451,050 --Proceedsfromlong-termdebt 15 7,825,000 --Repaymentoflong-termdebt 15 (458,647) --Advancesfromrelatedparties 21 350,141 885,269Repaymentofamountsduetorelatedparties 21 (350,141) (885,269) 152,902,060 10,384,726 Cashusedininvestingactivities: Investmentincapitalassets 10 (34,573,316) (3,991,459)Proceedsfromdisposalofcapitalassets 10 32,823 36,570Investmentinintangibleassets,netofsharesissued 11 (1,306,120) (27,156)Investmentinmarketablesecurities 5 (53,366,383) --Proceedsfromdisposalofmarketablesecurities 5 15,702,250 --Investmentinlong-terminvestments 12 (21,401,121) (50,000)Proceedsfromdivestitureoflong-terminvestments 25 4,139,649 --Issuanceofpromissorynotesreceivable 9 -- (200,000)Repaymentofpromissorynotesreceivable 9 503,438 183,998 (90,268,780) (4,048,047) Increaseincashandcashequivalents 67,878,468 5,001,638 Cashandcashequivalents,beginningofperiod 16,472,664 7,051,909 Cashandcashequivalents,endofperiod $84,351,132 $12,053,547
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
6
1. Natureofoperations
AphriaInc.(the"Company"or“Aphria”)isincorporatedinOntario.PureNaturesWellnessInc.doingbusinessasAphria(“PNW”),awholly-ownedsubsidiaryoftheCompany,islicensedtoproduceandsellmedicalmarijuanaunder theprovisionsof theAccess toCannabis forMedicalPurposes Regulations (“ACMPR”). The registeredoffice is located at 5300CommerceCourtWest, 199BayStreet,Toronto,Ontario.TheCompany’scommonsharesarelistedunderthesymbol“APH”ontheTorontoStockExchange(“TSX”)andunderthesymbol“APHQF”ontheUnitedStatesOTCQBVentureMarketexchange.ThesefinancialstatementswereapprovedbytheCompany’sBoardofDirectorsonApril12,2017.
2. Basisofpreparation
(a) Statementofcompliance TheCompany’scondensedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordance
withIAS34,“InterimFinancialReporting”.ThesefinancialstatementsdonotincludeallnotesofthetypenormallyincludedwithintheannualfinancialreportandshouldbereadinconjunctionwiththeauditedfinancialstatementsoftheCompanyfortheyearendedMay31,2016,whichhavebeenpreparedinaccordance with International Financial Reporting Standards (“IFRS”) as issued by the InternationalAccountingStandardsBoardandInterpretationsoftheIFRSInterpretationsCommittee.
(b) Basisofmeasurement
Thesefinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforcertainfinancialinstrumentsthataremeasuredatfairvalueandbiologicalassetsthataremeasuredatfairvaluelesscoststosell,asdetailedintheCompany’saccountingpolicies.
(c) FunctionalcurrencyThe Company and its subsidiaries’ functional currency, as determined by management is Canadiandollars.ThesefinancialstatementsarepresentedinCanadiandollars.
(d) BasisofconsolidationSubsidiariesareentitiescontrolledbytheCompany.ControlexistswhentheCompanyhasthepower,directlyandindirectly,togovernthefinancialandoperatingpoliciesofanentityandbeexposedtothevariable returns from its activities. The financial statements of subsidiaries are included in theconsolidatedfinancialstatements fromthedatethatcontrolcommencesuntil thedatethatcontrolceases.Whollyownedsubsidiaries JurisdictionofincorporationPureNaturesWellnessInc. OntarioAphria(Arizona)Inc. ArizonaCannWayPharmaceuticalsLtd Ontario
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
7
Intragroup balances, and any unrealized gains and losses or income and expenses arising from gainsarisingfromtransactionswithjointlycontrolledentitiesareeliminatedtotheextentoftheCompany’sinterestintheentity.Unrealizedlossesareeliminatedtotheextentofthegains,butonlytotheextentthatthereisnoevidenceofimpairment.
3. SignificantaccountingpoliciesThesecondensedinterimconsolidatedfinancialstatementshavebeenpreparedfollowingthesameaccountingpoliciesusedinthepreparationoftheauditedfinancialstatementsoftheCompanyfortheyearendedMay31,2016.ChangesinaccountingpolicyEffectiveJune1,2016,theCompanyadoptedamendmentstoIAS16-PropertyPlantandEquipmentandIAS41-Agriculture-Theamendmentsbringbearerplants,whichareusedsolelytogrowproduce,intothescopeofIAS16sothattheyareaccountedforinthesamewayasproperty,plantandequipment.Theamendmentswere effective for annual periods beginning on or after January 1, 2016, with earlier application beingpermitted.TheseamendmentsdidnotrequireanysignificantchangestotheCompany`saccountingpractices.
NewstandardsandinterpretationsissuedbutnotyetadoptedSeveralnewstandards,amendmentstostandardsandinterpretationsarenotyeteffectiveandhavenotbeenappliedinpreparingthesefinancialstatements.IFRS 2 – Share-based Payment, effective January 1, 2018, with early adoption permitted, introduces newrequirementsfortheclassificationandmeasurementofshare-basedpaymenttransactions.IFRS9-FinancialInstruments,effectiveforannualperiodsbeginningonorafterJanuary1,2018,withearlyadoption permitted, introduces new requirements for the classification and measurement of financialinstruments.IFRS15-RevenuefromContractswithCustomers,effectiveforannualperiodsbeginningonorafterJanuary1,2018,withearlyadoptionpermitted,specifieshowandwhentorecognizerevenueandenhancesrelevantdisclosurestobeappliedtoallcontractswithcustomers.IFRS16–Leases,inJanuary2016,theIASBissuedIFRS16,whichspecifieshowanIFRSreporterwillrecognise,measure, present and disclose leases. The standard provides a single lessee accounting model, requiringlessees to recognise assets and liabilities for all leases unless the lease term is 12months or less or theunderlyingassethasa lowvalue.Lessorscontinuetoclassify leasesasoperatingor finance,with IFRS16’sapproachtolessoraccountingsubstantiallyunchangedfromitspredecessor, IAS17.IFRS16iseffectiveforannualreportingperiodsbeginningonorafterJanuary1,2019,andalesseeshalleitherapplyIFRS16withfullretrospectiveeffectoralternativelynotrestatecomparativeinformationbutrecognisethecumulativeeffectofinitiallyapplyingIFRS16asanadjustmenttoopeningequityatthedateofinitialapplication.EarlyadoptionispermittedifIFRS15hasalsobeenadopted.TheCompanyisassessingthepotentialimpactofIFRS16.IAS7–StatementofCashFlow,effectiveforannualperiodsbeginningonorafterJanuary1,2017,withearlyadoption permitted, amended to improve information provided to users of financial statements about anentity’sfinancialactivitiesbymakingthefollowingchanges:
• The following changes in liabilities arising from financing activities are disclosed (to the extentnecessary):(i)changesfromfinancingcashflows;(ii)changesarisingfromobtainingorlosingcontrol
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
8
ofsubsidiariesorotherbusinesses;(iii)theeffectofchangesinforeignexchangerates;(iv)changesinfairvalues;and(v)otherchanges;
• The International Accounting Standards Board (“IASB”) defines liabilities arising from financingactivities as liabilities "for which cash flows were, or future cash flows will be, classified in thestatementofcashflowsascashflowsfromfinancingactivities".Italsostressesthatthenewdisclosurerequirementsalsorelatetochangesinfinancialassetsiftheymeetthesamedefinition;and
• Changes in liabilitiesarisingfromfinancingactivitiesmustbedisclosedseparatelyfromchanges inotherassetsandliabilities.
IAS12–IncomeTaxes,effectiveforannualperiodsbeginningonorafterJanuary1,2017,withearlyadoptionpermitted,amendedtoclarifythefollowingaspects:
• Unrealizedlossesondebtinstrumentsmeasuredatfairvalueandmeasuredatcostfortaxpurposesgiverisetoadeductibletemporarydifferenceregardlessofwhetherthedebt instrument'sholderexpectstorecoverthecarryingamountofthedebtinstrumentbysaleorbyuse;
• Thecarryingamountofanassetdoesnotlimittheestimationofprobablefuturetaxableprofits;• Estimatesforfuturetaxableprofitsexcludetaxdeductionsresultingfromthereversalofdeductible
temporarydifferences;and• Anentityassessesadeferredtaxassetincombinationwithotherdeferredtaxassets.Wheretaxlaw
restrictstheutilisationoftaxlosses,anentitywouldassessadeferredtaxassetincombinationwithotherdeferredtaxassetsofthesametype.
TheCompanyisassessingtheimpactofthesenewandrevisedstandards.
4. DisclosureofBusinessTransactionEffective January 13, 2016, Aphria acquired 100% of the issued and outstanding shares of CannWayPharmaceuticalsInc.CannWayPharmaceuticalsInc.providessupportservicestoveteranandfirstrespondersintheformofmedicalconsultations,grouptherapy,andrehabilitation.Pursuant to the acquisition, Aphria issued 3,600,000 common shares at $1.23 per share to the formershareholdersofCannWayPharmaceuticalsInc.,ofwhich1,800,000sharesweresubjecttoescrowandwillbeeither(i)releasedtotheformershareholdersofCannWayPharmaceuticalsInc.,basedontheachievementofcertainoperatingmetricsor (ii) released to theCompany for cancellation, if theoperatingmetrics arenotachievedbyDecember31,2018.Thesharesheldinescrowarerecordedasequityandwillbecontinuouslyevaluatedandadjustedbasedontheprobabilityoftheoperatingmetricsbeingachieved,asofFebruary28,2017managementexpects0%oftheremainingmilestonestobeachievedbyDecember31,2018.Purchasepriceallocationwasasfollows:
Nettangibleassetsacquired $--Intangibleasset–CannWaybrand 4,428,000Goodwill 1,200,000Deferredtaxliability (1,200,000)Totalpurchasepricerecorded $4,428,000
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
9
Nettangibleassetsacquiredincludedthefollowing:
Cashheldintrusttofundliabilitiesoutstandingatclosing $269,717Accountsreceivable 91,872Accountspayable (219,505)HSTpayable (58,107)Incometaxespayable (83,977)Nettangibleassetsacquired $--
TheCannWaybrandwasoriginallybeingamortizedover10yearsonastraight-linebasis.AmortizationbeganinJanuary2016.Inthecurrentquarter,managementreviseditsestimatefortheremainingusefullifeandisamortizingthebrandover15monthsonastraight-linebasis.GoodwillaroseintheacquisitionoftheCannWaybrandbecausethecostoftheacquisitionreflectedrevenuegrowthandthefuturemarketdevelopmentofthebrand.Thesebenefitswerenotrecognizedseparatelyfromgoodwill because they donotmeet the recognition criteria for identifiable intangible assets. Noneof thegoodwillarisingontheacquisitionisexpectedtobedeductiblefortaxpurposes.Acquisitioncostsof$10,375havebeenexpensedintheprioryearunderGeneralandadministrative.Costsofissuingequityof$85,384wereappliedagainstthefairvalueoftheequityissuedatthetimeoftheacquisition.
5. Marketablesecurities
Marketablesecuritiesareclassifiedasfairvaluethroughprofitorloss,andarecomprisedof: S&P
ratingatpurchase
Effectiveinterestrate
Maturitydate
February28,2017
February29,2016
CanadianWesternBank A- 2.531% 03/22/18 $3,067,615 --EnercareSolutionsInc. BBB 4.300% 11/30/17 1,445,445 --FordMotorCreditCo.LLC BBB 3.320% 12/19/17 2,045,200 --FordMotorCreditCo.LLC BBB 3.700% 08/02/18 1,032,729 HomeTrustCompany BBB 2.350% 05/24/17 5,037,954 --RoyalBankofCanada AA- 2.770% 12/11/18 5,156,657 --SobeysInc. BBB- 3.520% 08/08/18 3,056,402 --MolsonCoorsBrewingCompany BBB- 3.950% 10/06/17 1,134,894 --BankofMontreal(USD) A+ 1.400% 04/10/18 3,945,564 --CitigroupInc.(USD) BBB 2.050% 12/17/18 3,967,917 --RoyalBankofCanada(USD) AA- 1.625% 04/15/19 3,954,392 --WellsFargo&Company(USD) A 2.150% 01/30/17 3,833,294 -- $37,678,063 $--
ThecostofmarketablesecuritiesasatFebruary28,2017was$37,547,076(2016–$nil).Duringthequarter,thecompanydivestedof$15,702,250(2016-$nil)ofmarketablesecuritiesinitsCanadianportfolio,convertedtheproceedstoUnitedStatesdollarsandthenre-investedtheUnitedStatesdollarsinitsU.S.portfolio.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
10
6. Otherreceivables
Otherreceivablesarecomprisedof:
February28, May31, 2017 2016HSTreceivable(payable) 1,176,814 (35,909)Accruedinterest 154,877 98,197Creditcardreceivable 113,512 64,621Other 49,500 43 $1,494,703 $126,952
7. Inventory
Inventoryiscomprisedof:
February28, May31, 2017 2016Harvestedcannabis $1,725,707 $1,714,897Cannabisoil 685,935 165,060Packagingandsupplies 243,063 208,893 $2,654,705 $2,088,850
Costofinventoryisrecognizedasexpenseandincludedincostofsales.IncludedincostsofsalesforthethreemonthsendedFebruary28,2017is$50,468ofcannabisoilconversioncostsand$26,778relatedtothecostofaccessories.IncludedincostsofsalesfortheninemonthsendedFebruary28,2017is$88,658ofcannabisoilconversioncostsand$26,778relatedtothecostofaccessories.TheCompanyholds460.2kilogramsofharvestedcannabis(2016–457.3kgs),1,097.5litresofcannabisoilsor182.9kilogramsequivalent(2016–264.1litresor44.1kilogramsequivalent)atFebruary28,2017.
8. BiologicalassetsBiologicalassetsarecomprisedof: AmountBalanceasatMay31,2016 $697,997Costsincurreduntilharvest 248,073Neteffectofunrealizedchangesinfairvalueofbiologicalassets 520,574Transferredtoinventoryuponharvest (720,700)Transferredtocapitalassets (93,897)BalanceasatFebruary28,2017 $652,047
TheCompanyvaluesmedicalcannabisplantsatcostfromthedateofinitialclippingfrommotherplantsuntiltheendofthetwelfthweekofitsgrowingcycle.Measurementofthebiologicalassetatfairvaluelesscoststosellandcoststocompletebeginsatthethirteenthweekuntilharvest.TheCompanyhasdeterminedthefairvaluelesscoststoselltobe$3.75pergram,uponharvest.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
11
Theneteffectofthefairvaluelesscosttoselloverandabovehistoricalcostwasa(decrease)increaseinnon-cashvalueofinventoryof$(14,243)and$520,574duringthethreeandninemonthsendedFebruary28,2017(2016 – $(84,823) decrease and $(42,033) decrease). In determining the fair value of biological assets,managementisrequiredtomakeseveralestimates,including:theexpectedcostrequiredtogrowthecannabisuptothepointofharvest;harvestingcosts;sellingcosts;salesprice;and,expectedyields forthecannabisplant.Theseestimatesaresubjecttovolatilityinmarketpricesandseveraluncontrollablefactors,whichcouldsignificantlyaffectthefairvalueofbiologicalassetsinfutureperiods.ThefairvalueofmedicalcannabisplantsisconsideredtobeLevel3inthefairvaluehierarchyandthesignificantassumptionsusedindeterminingthefairvalueofmedicalcannabisplantsareasfollows:
• yieldbyplant;and,• percentageofcostsincurredforeachstageofplantgrowth.• fairvaluelesscoststoselloftheharvestedproduct
9. Promissorynotesreceivable
May31,2016 Additions Payments February28,
2017Notereceivable-$100,000,bearinginterestatprime+3%,one-yearterm,collectedintheperiod
$93,039 $-- $93,039 $--
Notereceivable-$500,000,bearinginterestat3%,repayablein24equalblendedmonthlyinstalments,dueinMay2017
274,549 -- 210,399 64,150
Notereceivable-$100,000,non-interestbearing,one-yearterm,collectedintheperiod
100,000 -- 100,000 --
Notereceivable-$100,000,non-interest,one-yearterm,collectedintheperiod
100,000 -- 100,000 --
$567,588 $-- $503,438 $64,150
10. Capitalassets
Land Greenhouseinfrastructure
Bearerplants
Equipment Leaseholdimprovements
Constructioninprocess
Totalcapitalassets
Cost AtMay31,2015 $-- $-- $-- $1,450,011 $2,231,612 $304,701 $3,986,324Additions -- -- -- 1,051,980 221,204 3,152,875 4,426,059Transfers -- -- -- 1,033,433 2,359,337 (3,392,770) --Disposals -- -- -- (35,896) -- -- (35,896)AtMay31,2016 -- -- -- 3,499,528 4,812,153 64,806 8,376,487Additions 10,712,604 4,018,080 93,897 1,162,246 16,129 18,570,360 34,573,316Transfers -- 4,565,987 -- -- (4,565,987) -- --Disposals -- -- (63,501) (32,823) -- - (96,324)AtFeb28,2017 $10,712,604 $8,584,067 $30,396 $4,628,951 $262,295 $18,635,166 $42,853,479
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
12
Land Greenhouseinfrastructure
Bearerplants
Equipment Leaseholdimprovements
Constructioninprocess
Totalcapitalassets
Accumulatedamortization
AtMay31,2015 $-- $-- $-- $172,860 $187,303 -- $360,163Amortization -- -- -- 387,992 325,563 -- 713,555Disposals -- -- -- (6,451) -- (6,451)AtMay31,2016 -- -- -- 554,401 512,866 -- 1,067,267Amortization -- 333,423 -- 501,581 66,907 -- 901,911Transfers -- 524,749 -- -- (524,749) -- --Disposals -- -- -- (11,367) -- -- (11,367)AtFeb.28,2017 $-- $858,172 $-- $1,044,615 $55,024 $-- $1,957,811
Netbookvalue AtMay31,2015 -- -- -- $1,277,151 $2,044,309 $304,701 $3,626,161AtMay31,2016 -- -- -- $2,945,127 $4,299,287 $64,806 $7,309,220AtFeb.28,2017 $10,712,604 $7,725,895 $30,396 $3,584,336 $207,271 $18,635,166 $40,895,668
Includedincostofgoodssoldis$63,501ofexpenserelatedtothedispositionandusageofbearerplants.Duringtheperiod,theCompanydisposedofcapitalassetswithanetbookvalueof$21,456forproceedsof$32,823.
11. IntangibleAssets
Corporatewebsite
Licenses&permits
TokyoSmokelicensingagreement
CannWaybrand
Totalintangibleassets
Cost AtMay31,2015 $107,995 $-- $-- $-- $107,995Additions 53,705 -- -- 4,428,000 4,481,705AtMay31,2016 161,700 -- -- 4,428,000 4,589,700Additions 56,120 1,250,000 459,480 -- 1,765,600AtFebruary28,2017 $217,820 $1,250,000 $459,480 $4,428,000 $6,355,300
Accumulatedamortization AtMay31,2015 $33,397 $-- $-- $-- $33,397Additions 54,123 -- -- 184,500 238,623AtMay31,2016 87,520 -- -- 184,500 272,020Additions 54,042 110,984 33,965 332,100 531,091Impairment -- -- -- 3,500,000 3,500,000AtFebruary28,2017 $141,562 $110,984 $33,965 $4,016,600 $4,303,111
Netbookvalue AtMay31,2015 $74,598 $-- $-- $-- $74,598AtMay31,2016 $74,180 $-- $-- $4,243,500 $4,317,680AtFebruary28,2017 $76,258 $1,139,016 $425,515 $411,400 $2,052,189
TheCompanyvaluedthepurchasepricefortheTokyoSmokebasedonthefairvalueofthesecuritiesissuedaspartof thetransaction. TheTokyoSmokebrand isbeingamortizedoverthe60-monthtermofthebrandingagreement.TheCompanyrecordedanimpairmentofitsintangibleassetfortheCannWaybrandfollowingthechangestoreimbursement allowances for veterans, as announced by Veterans Affairs Canada (“VAC”). The changesannouncedbyVACloweredthereimbursementamountto$8.50pergramandeffectiveMay26,2017,limitedindividualpatientsusageto3.0gramsperday.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
13
12. Long-termInvestments
Investment May31,2016
Investment Divestiture Cumulativechangeinfairvalue
February28,2017
Level1onfairvaluehierarchy CannaRoyaltyCorp. Shares $1,510,200 $1,625,000 $(1,630,304) $2,287,104 $3,792,000CannaRoyaltyCorp. Debenture -- 1,427,113 -- -- 1,427,113CannaRoyaltyCorp. Conversion -- 173,000 -- 770,000 943,000KalyteraTherapeutics,Inc. Shares -- 3,014,320 -- 627,160 3,641,480MassRoots,Inc. Shares -- 337,500 (337,500) -- --MassRoots,Inc. Warrants -- -- -- 166,000 166,000SecureComMobileInc. Debenture -- 195,327 -- -- 195,327SecureComMobileInc. Conversion -- 5,108 -- 1,399,564 1,404,672SecureComMobileInc. Warrants -- -- -- 59,000 59,000TetraBio-PharmaInc. Shares -- 546,000 -- 3,154,000 3,700,000TetraBio-PharmaInc. Warrants -- 454,000 -- 1,820,000 2,274,000CanaboMedicalInc. Shares -- 8,500,000 -- (3,160,000) 5,340,000 $1,510,200 $16,277,368 $(1,967,804) $7,122,828 $22,942,592Level3onfairvaluehierarchy AmpleOrganicsInc. Shares $50,000 $-- $-- $-- $50,000CopperstateFarms,LLC Units -- 1,755,000 -- (50,775) 1,704,225CopperstateFarmInvestors,LLC Units -- 3,488,940 -- (80,491) 3,408,449ResolveDigitalHealthInc. Shares -- 718,000 -- -- 718,000ResolveDigitalHealthInc. Warrants -- 282,000 -- (20,000) 262,000GreenAcresCapitalFund Units -- 300,000 -- -- 300,000 $50,000 $6,543,940 $-- $(151,266) $6,442,674 $1,560,200 $22,821,308 $(1,967,804) $6,971,562 $29,385,266
Atquarter-end,theCompanyhasconcludedthatthefairvalueandcarryingvalueoftheLevel3investmentsareequal to themost recent financing transactions,which represent thebestproxy for fair value.The fair valueattachedtowarrantsinbothLevel1andLevel3weredeterminedusingtheBlack-Scholesauctionpricingmodel.CannaRoyaltyCorp.
On September 9, 2016, Aphria exercised 750,000warrants, issued by CannaRoyalty Corp. (“CR”), to acquire750,000commonsharesofCRfor$1,125,000andsubsequentlypurchasedanadditional250,000commonsharesofCRfor$500,000onSeptember27,2016.OnOctober19,2016,Aphrialoaned$1,500,000toCRasaconvertibledebenture.Theconvertibledebenturebearsinterestat5%,compoundedannually,maturesinthreeyearsandincludestherighttoconvertthedebentureintocommonsharesofCRat$2.00percommonshareatanytimebeforematurity.CRmaintainstheoptionofforcedconversionoftheconvertibledebentureifthecommonsharesofCRtradeonastockexchangeatavalueof$4.00ormore.Inaddition,CRlicenced,forafive-yearperiod,itsCanadianportfolioofcannabisproducts inexchangefora5%royalty feepaidbyAphria. InDecember2016,Aphriasold1,300,000sharesfortotalproceedsof$3,539,050,throughthreeseparatetransactions,realizingagainof$1,908,746ondisposal.Asaresultofthesetransactions,Aphriaholds1,200,000commonsharesofCRatacostof$1,504,896andhasa$1,500,000convertibledebenture,dueonOctober18,2019. MassRoots,Inc.
OnOctober 18, 2016, Aphria announced it had signed an agreementwithMassRoots, Inc. (‘‘MassRoots’’), atechnologyplatformforcannabisconsumers,businessesandactiviststohelpbuildawarenessoftheAphriabrandamongstMassRoots’Canadianuserbase.Aspartoftheagreement,Aphriapurchased500,000commonsharesofMassRootsforanaggregatepurchasepriceof$250,000USD($337,500)andreceivedwarrantstopurchaseanadditional500,000commonsharesat$0.90USDpercommonshare,expiringOctober17,2019.SubsequenttoOctober 18, 2016 Aphria divested itself of its 500,000 common shares of MassRoots for total proceeds of$600,599,realizingagainof$263,099ondisposal;however,theCompanymaintainsthe500,000warrantstopurchasecommonsharesat$0.90USD.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
14
CopperstateFarms
OnOctober27,2016,AphriaenteredintoanintellectualpropertytransferagreementwithCopperstateFarms,LLC(‘‘Copperstate’’),a licensedproducerandsellerofmedicalcannabisundertheArizonaMedicalMarijuanaAct. Copperstate maintains a 40-acre greenhouse facility in Snowflake, Arizona. Under the terms of theagreement, Aphria will license certain of its intellectual property to Copperstate in exchange for a 5.0%membership interest inCopperstate throughaconsultingagreementwhichwillbeused to forgivepaymentsotherwise owing on a $1,300,000 USD ($1,755,000) promissory note in eight equal quarterly installmentsbeginning in February 2017. On the same date, Aphriamade a direct cash contribution of $1,300,000USD($1,733,940) to Copperstate Farms Investors, LLC, the parent company of Copperstate, in return for a 5.0%membership interest in the parent company. OnDecember 20, 2016, Aphriamade a further investment of$1,300,000USD($1,747,188)inCopperstateFarmsInvestors,LLC.Asaresultofthesetransactions,Aphriahasacquired approximately 5% of Copperstate for $1,300,000 USD ($1,755,000) and approximately 10% ofCopperstateFarmsInvestors,LLCfor$2,600,000USD($3,488,940Cdn).KalyteraTherapeutics,Inc.
OnNovember7,2016,AphriaenteredintoasubscriptionagreementwithKalyteraTherapuetics,Inc.(“Kalytera”)TheCompanypurchased2,500,000subscriptionreceiptsatapriceof$0.40perreceiptforatotalof$1,000,000.OnDecember30,2016,theCompany’ssubscriptionreceiptsconvertedintocommonsharesofKalyteraonaone-for-onebasis.OnJanuary31,2017,Aphriasubscribedforanadditional2,222,000commonsharesofKalyteraforapurchasepriceof$999,900pursuanttoaprivateplacementwhichclosedonFebruary7,2017,subjecttofinalapprovaloftheTSX-VentureExchange.OnFebruary22,2017,Aphriapurchasedanadditional1,450,000commonsharesofKalyterainthesecondarymarketatapriceof$0.70pershareforatotalof$1,014,420.Asaresultofthese transactions, Aphria owns 6,172,000 common shares in Kalytera, representing approximately 4.8% ofKalytera’sissuedandoutstandingcommonsharesforaggregatecostsof$3,014,320.SecureComMobileInc.
On November 23, 2016, Aphria invested $200,000 in SecureCom Mobile Inc. via an unsecured convertibledebenture.Thedebenturebearsinterestat12%andisconvertibleintoequityat$0.05pershare,andincludestherighttoawarrantforeachshareofequityonconversion,pricedat$0.08.ThewarrantexpiresonDecember1,2019andtheconversionrightexpiresNovember20,2018.ResolveDigitalHealthInc.
OnDecember1,2016,Aphriapurchased10,526commonsharesofResolveDigitalHealth Inc. (‘‘Resolve’’), acompany in theprocessofdevelopingadeliverysystemformedicalmarijuana,andanequivalentnumberofcommon sharepurchasewarrants for gross proceedsof $1,000,000. Following a stock split in January 2017,Aphria now owns 2,000,024 common shares and 2,000,024 common share purchase warrants of Resolve,exercisableat$0.65perwarrantatany time foraperiodexpiring fiveyears from thedateof issuance. ThewarrantscontainaforcedconversionprovisionifResolvetradesonapublicstockexchangeatapriceofmorethan$1.30foraperiodofatleast30days.TetraBio-PharmaInc.
OnDecember6,2016,Aphriapurchased5,000,000commonsharesofTetraBio-PharmaInc.(“TBP”),acompanyengaged in pain management research, at a price of $0.20 per share for an aggregate purchase price of$1,000,000,pursuanttoaprivateplacement.Aspartofthetransaction,Aphriaalsoreceived5,000,000warrants,eachforconversion intoonecommonshare,atapriceof$0.26perwarrant foraperiodof threeyears.ThewarrantsaresubjecttoanacceleratedexpiryifTBP’ssharestradeabove$0.45for30consecutivetradingdaysatwhichtimethewarrantswillbecomesubjecttoa30-dayexpiryperiodifnotexercised.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
15
CanaboMedicalInc.
OnDecember23,2016,Aphriapurchased6,000,000commonsharesofCanaboMedical Inc., theownerandoperatorofCannabinoidMedicalClinics,orCMClinics,Canada’slargestreferral-onlyclinicsformedicalcannabis,atapriceof$1.40percommonshareforanaggregatepriceof$8,400,000pursuanttoaprivateplacement.GreenAcresCapitalFund
OnJanuary23,2017,AphriaagreedtoinvestinGreenAcresCapitalFund,aCanadianinvestmentfundseekinginvestments in the legalmarijuana sector in Canada, theUnited States and internationally. In relation to itsparticipation,Aphriacommitted$2,000,000totheexpected$30,000,000fundandasofthebalancesheetdatehasinvested$300,000.
13. BankIndebtednessTheCompanysecuredanoperating lineofcredit in theamountof$1,000,000whichbears interestat thelender’sprimerateplus75basispoints.AsoftheendoftheperiodtheCompanyhasnotdrawnonthelineofcredit.Theoperatinglineofcreditissecuredbyfirstchargeon265TalbotStWest,Leamington,Ontario,andafirstrankingpositiononageneralsecurityagreement.
14. PromissoryNotePayable
May31,2016
Additions Paymentsforgiven
February28,2017
NotepayabletoCopperstateFarms,LLC-$1,300,000USD,bearingnominalinterest,two-yearterm,forgivableineightquarterlyinstalments
$--
$1,704,225
$284,038
$1,420,187
Deduct–principalportionincludedincurrentliabilities -- -- -- (852,112) $-- $1,704,225 $284,038 $568,075
15. Longtermdebt
February28,2017 May31,2016
Termloan–$1,250,000–3.99%,5-yearterm,witha10-yearamortization,repayableinequalmonthlyinstalmentsof$12,630includinginterest,dueinJuly2021.
$1,190,369
$--
MortgagePayable–$3,750,000–3.95%,5-yearterm,witha20-yearamortization,repayableinequalmonthlyinstalmentsof$22,562includinginterest,dueinJuly2021.
3,677,899
--
Vendortake-backmortgageowedtorelatedparty–$2,850,000–6.75%,5-yearterm,repayableinequalmonthlyinstalmentsof$56,097includinginterest,dueinJune2021
2,523,085
--
7,391,353 --Deduct–unamortizedfinancefees (21,667) --–principalportionincludedincurrentliabilities (754,098) --
$6,615,588 $--
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
16
Totallong-termdebtrepaymentsareasfollows:
PeriodendingFebruary28,Next12months $754,098
2years 799,6483years 848,0914years 899,6165years 4,089,900
Balanceofobligation $7,391,353Thevendortake-backmortgagepayableof$2,523,085,owedtoadirectoroftheCompany,wasenteredintoonJune30,2016inconjunctionwiththeacquisitionofthepropertyat265TalbotStWest.Themortgageissecuredbyasecondchargeonthepropertyat265TalbotStWest.Themortgagepayableof$3,677,899andtermloanof$1,190,369wereenteredintoonJuly22,2016andaresecuredby a first chargeon theproperty at 265 Talbot StWest and a first positionon a general securityagreement.
16. Sharecapital
TheCompany isauthorizedto issueanunlimitednumberofcommonshares. AsatFebruary28,2017,theCompanyhasissued124,074,220shares.CommonShares NumberofShares AmountBalanceatMay31,2016 70,053,933 $40,916,880Boughtdeals,netofissuance 38,812,500 123,091,925Warrantsexercised 14,558,932 22,600,975Optionsexercised 572,596 761,665Shareissuanceinexchangeforservices 37,500 186,026Shareissuanceinexchangeforintangibleasset 38,759 100,000BalanceatFebruary28,2017 124,074,220 $187,657,471
a) InAugust2016,theCompanyclosedaboughtdealfinancinginwhichitissued17,250,000common
sharesatapurchasepriceof$2.00persharefor$31,959,093,netofcashissuancecosts.
b) In November 2016, the Company closed a bought deal financing in which it issued 10,062,500commonsharesatapurchasepriceof$4.00persharefor$37,263,475,netofcashissuancecosts.
c) InFebruary2017,theCompanyclosedaboughtdealfinancinginwhichitissued11,500,000commonsharesatapurchasepriceof$5.00persharefor$53,869,357,netofcashissuancecosts.
d) Throughoutthenine-monthperiod,14,558,932warrantswithexercisepricesrangingfrom$0.60to$1.75wereexercisedfor$22,600,975.
e) Throughoutthenine-monthperiod,572,596stockoptionswithexercisepricesrangingfrom$0.60to$1.30wereexercisedfor$761,665.
f) InSeptember2016,theCompanyissued38,759commonsharespursuanttoexecutionofanexclusivesupplyandlicensingagreement.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
17
g) In January2017, theCompany issued37,500commonsharespursuant toa thirdparty consultingagreementforgreenhouserelatedservices
Thefollowingtablepresentsthemaximumnumberofsharesthatwouldbeoutstandingifallthedilutive“inthemoney”instrumentsoutstandingasatFebruary28,2017wereexercised:CommonsharesoutstandingatFebruary28,2017 124,074,220Warrantsoutstandingand“inthemoney” 3,775,873Optionsoutstandingand“inthemoney” 6,266,500FullydilutedbalanceatFebruary28,2017 134,116,593
17. Warrants
ThewarrantdetailsoftheCompanyareasfollows:
Typeofwarrant Expirydate Numberof
warrantsWeightedaverageprice
Amount
Compensationwarrant/option December10,2018 106,157 $1.75 $85,432Warrant December11,2018 357,923 $1.75 --Warrant December2,2019 3,111,793 $1.50 --Warrant September26,2021 200,000 $3.14 359,480BalanceatFebruary28,2017 3,775,873 $1.62 $444,912
February28,2017 May31,2016
NumberofWarrants
WeightedAverageExercisePrice
NumberofWarrants
WeightedAverageExercisePrice
Outstanding,beginningoftheperiod 17,919,719 $1.53 18,093,728 1.37Expiredduringtheperiod (50,305) 1.20 -- --Issuedduringtheperiod 465,391 2.48 5,756,235 1.67Exercisedduringtheperiod (14,558,932) 1.55 (5,930,244) 1.18Cancelledduringtheperiod -- -- -- --Outstanding,endofperiod 3,775,873 $1.57 17,919,719 $1.53
TheCompanyusedtheBlackScholesoptionpricingmodeltodeterminethefairvalueofwarrantsgranted
usingthefollowingassumptions:risk-freerateof0.44-1.56%onthedateofgrant;expectedlifeof3and5years;volatilityof70%basedoncomparablecompanies;forfeiturerateofnil;dividendyieldofnil;and,theexercisepriceoftherespectivewarrant.
18. Stockoptions
TheCompanyadoptedastockoptionplanunderwhichitisauthorizedtograntoptionstoofficers,directors,employees,andconsultantsenablingthemtoacquirecommonsharesoftheCompany.Themaximumnumberofcommonsharesreservedforissuanceofstockoptionsthatmaybegrantedundertheplanis10%oftheissuedandoutstandingcommonsharesoftheCompany.Theoptionsgrantedcanbeexercisedforamaximumof10yearsandvestasdeterminedbytheBoardofDirectors.Theexercisepriceofeachoptionmaynotbelessthanthemarketpriceofthecommonsharesonthedateofgrant.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
18
TheCompanyrecognizedashare-basedcompensationexpenseof$1,255,976duringthethreemonthsendedFebruary28,2017(2016-$145,748)and$1,710,565duringtheninemonthsendedFebruary28,2017(2016-$405,079).Thetotalfairvalueofoptionsgrantedduringtheperiodwas$2,846,399(2016-$282,040). February28,2017 May31,2016
NumberofOptions
WeightedAverageExercisePrice
NumberofOptions
WeightedAverageExercisePrice
Outstanding,beginningoftheperiod 4,975,000 $0.84 4,520,000 0.81Exercisedduringtheperiod (641,500) 1.03 -- --Issuedduringtheperiod 2,113,000 3.73 565,000 $1.13Cancelledduringtheperiod (180,000) 1.11 (110,000) 1.08Outstanding,endofperiod 6,266,500 $1.79 4,975,000 $0.84Exercisable,endofperiod 4,333,287 $1.25 3,906,454 $0.76
InJune2016,theCompanyissued283,000stockoptionsatanexercisepriceof$1.40pershare,exercisablefor5yearstoemployeesandofficers.Oftheoptionsissued,94,329vestimmediatelyand188,671vestover2years.InJune2016,theCompanyissued30,000stockoptionsatanexercisepriceof$1.48pershare,exercisablefor5yearstoaconsultantoftheCompany.Oftheoptionsissued,15,000vestimmediatelyand15,000vestin1year.InJuly2016,theCompanyissued110,000stockoptionsatanexercisepriceof$1.64pershare,exercisablefor5yearstoanemployee.Oftheoptionsissued,50,000vestimmediatelyand60,000vestoverthreeyears.In September 2016, the Company issued 75,000 stock options at an exercise price of $3.00 per share,exercisablefor3yearstoconsultantsandemployeesofthecompany.25,000vest immediatelyand50,000vestbasedoncertainperformancemetricsattainableoverthethree-yearperiod.InOctober2016,theCompanyissued20,000stockoptionsatanexercisepriceof$3.49pershare,exercisablefor3yearstoanemployeeofthecompany.6,666vestimmediatelyand13,334vestovertwoyears.InOctober2016,theCompanyissued50,000stockoptionsatanexercisepriceof$3.70pershare,exercisablefor3yearstoadirectorofthecompany.All50,000vestimmediately.In November 2016, the Company issued 1,000,000 stock options at an exercise price of $3.90 per share,exercisable for 3 years to directors, officers, consultants and employees of the company. 333,333 vestimmediatelyand666,667vestover2years.In December 2016, the Company issued 500,000 stock options at an exercise price of $5.25 per share,exercisablefor3yearstoconsultantsofthecompany.All500,000vestbasedoncertainperformancemetricsattainableoverthethree-yearperiod.InJanuary2017,theCompanyissued45,000stockoptionsatanexercisepriceof$5.72pershare,exercisablefor3yearstoemployeesofthecompany.5,000vestimmediatelyandtheremaindervestover2years.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
19
TheoptiondetailsoftheCompanyareasfollows:
Expirydate Exerciseprice Numberofoptions
Vestedandexercisable
November2017 $1.10 305,000 305,000December2017 $1.10 700,000 139,920March2018 $0.90 20,000 20,000April2018 $1.18 100,000 100,000October2018 $1.17 20,000 13,333November2018 $1.49 20,000 20,000December2018 $1.30 170,000 170,000April2019 $1.67 33,500 33,500June2019 $0.60 2,550,000 2,550,000September2019 $3.00 75,000 28,875October2019 $3.49–3.70 70,000 56,666November2019 $3.90 1,000,000 333,333December2019 $5.25 500,000 166,665January2020 $5.72 45,000 1,666September2020 $0.85 185,000 185,000November2020 $1.19 50,000 50,000June2021 $1.40 283,000 94,329June2021 $1.48 30,000 15,000July2021 $1.64 110,000 50,000BalanceatFebruary28,2017 $1.79 6,266,500 4,333,287
TheCompanyusedtheBlackScholesoptionpricingmodeltodeterminethefairvalueofoptionsgrantedusingthefollowingassumptions:risk-freerateof0.44-1.56%onthedateofgrant;expectedlifeof3and5years;volatility of 62-70%based on comparable companies; forfeiture rate of 5%; dividend yield of nil; and, theexercisepriceoftherespectiveoption.
19. Share-basedcompensation
Share-basedcompensationiscomprisedof:
February28, February29, 2017 2016
Amounts charged to share-basedpayment reserve in respectofshare-basedcompensation $1,508,539 $405,079Sharesforservicescompensation 186,026 --Deferredshareunitsexpensedinperiod 16,000 --Totalshare-basedcompensation $1,710,565 $405,079
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
20
20. Share-basedpaymentreserve
Share-basedpaymentreserveiscomprisedof:
February28, February29, 2017 2016
Balance,beginningofyear $1,723,903 $1,261,589Amountsdeductedfromshare-basedpaymentreserveinrespectofstockoptionsexercisedduringtheperiod (310,615) --Amountschargedtoshare-basedpaymentreserveinrespectofshare-basedcompensation 1,508,539
405,079
Balance,endofyear $2,921,827 $1,666,668
21. Relatedpartytransactions
Priortogoingpublic,theCompanyfundedoperationsthroughthesupportofrelatedparties.Sincegoingpublic,theCompanyhascontinuedtoleveragethepurchasingpoweroftheserelatedpartiesforcertainofitsgrowingrelatedexpenditures.ThebalanceowingtorelatedpartiesasatFebruary28,2017was$nil(May31,2016-$nil).ThesepartiesarerelatedastheyarecorporationsthatarecontrolledbycertainofficersanddirectorsoftheCompany.
AmountBalanceasatMay31,2016 $--Relatedpartychargesinperiod 350,141Paymentstorelatedpartiesinperiod (350,141)BalanceasatFebruary28,2017 $--
DuringtheninemonthsendedFebruary28,2017,relatedpartycorporationschargedorincurredexpendituresonbehalfoftheCompanytotalling$350,141(2016-$885,269).Includedinthisamountwasrentof$41,211chargedduringtheninemonthsendedFebruary28,2017(2016-$135,383).Duringtheperiod,theCompanypurchased36acresoffarmland,with9acresofgreenhouseslocatedthereon,fromF.M.andCacciavillaniFarmsLtd.,acompanycontrolledbyadirector,for$6.1million.Thepurchasepricewasallocatedasfollows:(i)$1.3milliontoland;(ii)$3.55milliontogreenhouseinfrastructure;and,(iii)$1.25milliontolicensesandpermits–intangibleassets.
Keymanagementpersonnelcompensationiscomprisedof:
February28, February29, 2017 2016
Salaries $619,755 $474,129Short-termemploymentbenefits(includedinofficeandgeneral) 34,673 --Share-basedcompensation 423,255 243,230 $1,077,683 $717,359
DirectorsandofficersoftheCompanycontrol15.2%or18,905,366ofthevotingsharesoftheCompany.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
21
22. Financeincome,netFinanceincome,netiscomprisedof:
February28, February29, 2017 2016
Interestincome $934,970 $171,947Interestexpense (236,486) -- $698,484 $171,947
23. Generalandadministrativeexpenses
Forthethreemonths
endedFortheninemonthsended
February28(29) February28(29) 2017 2016 2017 2016Executivecompensation $202,831 $201,634 $619,755 $456,129Consultingfees 52,899 7,026 132,311 34,313Officeandgeneral 397,468 202,186 1,105,853 426,243Professionalfees 151,170 128,577 391,034 264,158Salariesandwages 301,100 118,110 788,680 269,579Travelandaccommodation 100,909 43,842 319,954 159,204Rent 24,249 9,778 57,349 32,361 $1,230,626 $711,153 $3,414,936 $1,641,987
24. Changeinnon-cashworkingcapitalChangeinnon-cashworkingcapitaliscomprisedof:
February28, February29, 2017 2016
Increaseinaccountsreceivable $(260,746) $(2,297,112)(Increase)decreaseinotherreceivables (1,367,751) 651,940Increaseininventory (123,072) (146,698)Decrease(Increase)inbiologicalassets 123,741 (147,663)Increaseinprepaidassets (269,274) (138,766)Increaseinaccountspayableandaccruedliabilities 3,329,970 666,269 $1,432,868 $(1,412,030)
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
22
25. Gainonlong-terminvestments
Gainonlong-terminvestmentsforthethreeandninemonthsendedFebruary28,2017iscomprisedof:
Investment Proceeds Cost Realizedgainondisposal
Changeinfairvalue
Total
Level1onfairvaluehierarchy CannaRoyaltyCorp-Shares. $3,539,050 $1,630,304 $1,908,746 $-- $1,908,746MassRootsInc.-Shares 600,599 337,500 263,099 -- 263,099Long-terminvestments(Note12) -- -- -- 6,971,562 6,971,562NineMonthsEndedFebruary28,2017 $4,139,649 $1,967,804 $2,171,845 $6,971,562 $9,143,407Lesstransactionsinpreviousquarters:
MassRootsInc.-Shares 600,599 337,500 263,099 -- 263,099ThreeMonthsEndedFebruary28,2017 $3,539,050 $1,630,304 $1,908,746 $6,971,562 $8,880,308
26. Earnings(loss)pershare
ThecalculationofearningspershareforthethreemonthsendedFebruary28,2017wasbasedonthenetincomeattributabletocommonshareholdersof$4,950,250(2016–$3,720)andaweightedaveragenumberofcommonsharesoutstandingof111,976,759(2016–62,174,289)calculatedasfollows:
2017 2016Basicearningspershare: Netincomeforthethree-monthperiod $4,950,250 $3,720Averagenumberofcommonsharesoutstandingduringtheperiod 111,976,759 62,174,289Earningspershare $0.04 $0.00
2017 2016Dilutedearningspershare: Netincomeforthethree-monthperiod $4,950,250 $3,720 Averagenumberofcommonsharesoutstandingduringtheyear 111,976,759 62,174,289“inthemoney”warrantsoutstandingduringtheperiod 2,445,570 1,142,486“inthemoney”optionsoutstandingduringtheperiod 3,875,709 3,714,206 118,298,038 67,030,981Earningspershare $0.04 $0.00
Thecalculationofearnings(loss)persharefortheninemonthsendedFebruary28,2017wasbasedonthenetincome(loss)attributabletocommonshareholdersof$6,791,197(2016–lossof$904,203)andaweightedaveragenumberofcommonsharesoutstandingof93,655,328(2016–55,699,999)calculatedasfollows:
2017 2016Basicearnings(loss)pershare: Netincome(loss)forthenine-monthperiod $6,791,197 $(904,203)Averagenumberofcommonsharesoutstandingduringtheperiod 93,655,328 55,699,999Earnings(loss)pershare $0.07 $(0.02)
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
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2017 2016
Dilutedearnings(loss)pershare: Netincome(loss)forthenine-monthperiod $6,791,197 $(904,203) Averagenumberofcommonsharesoutstandingduringtheperiod 93,655,328 55,699,999“inthemoney”warrantsoutstandingduringtheperiod 2,445,570 1,142,486“inthemoney”optionsoutstandingduringtheperiod 3,875,709 3,714,206 99,976,607 60,556,691Earnings(loss)pershare $0.07 $(0.01)
27. Financialriskmanagementandfinancialinstruments
FinancialinstrumentsTheCompanyhasclassifieditscashandcashequivalents,marketablesecuritiesandlong-terminvestments,withtheexceptionofthedebentureinCannaRoyaltyCorp.andSecureComMobileInc.,asfairvaluethroughprofit or loss, accounts receivable and other receivables and promissory notes receivable as loans andreceivables,andaccountspayableandaccrued liabilities,promissorynotespayable,and long-termdebtasotherfinancialliabilities.ThedebenturesinCannaRoyaltyCorp.andSecureComMobileInc.areaccountedforonanamortizedcostbasis. Thecarryingvaluesofotherreceivables,promissorynotesreceivable,accountspayableandaccruedliabilities,andpromissorynotespayableapproximatetheirfairvaluesduetotheirshortperiodstomaturity.TheCompany’slong-termdebtof$7,391,353issubjecttofixedinterestrates.TheCompany’slong-termdebtisvaluedbasedondiscountingthefuturecashoutflowsassociatedwiththelong-termdebt.Thediscountrateis based on the incremental premium abovemarket rates forGovernment of Canada securities of similarduration. In each period thereafter, the incremental premium is held constantwhile the Government ofCanadasecurityisbasedonthethencurrentmarketvaluetoderivethediscountrate.ThefairvalueoftheCompany’slong-termdebtatFebruary28,2017was$7,312,307.
FairvaluehierarchyFinancial instruments recorded at fair value are classified using a fair value hierarchy that reflects thesignificanceofinputsusedinmakingthemeasurements.CashandcashequivalentsareLevel1.Thehierarchyissummarizedasfollows:
Level1 quotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilitiesLevel2 inputsthatareobservablefortheassetorliability,eitherdirectly(prices)orindirectly(derivedfrom
prices)fromobservablemarketdataLevel3 inputsforassetsandliabilitiesnotbaseduponobservablemarketdata
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
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Level1 Level2 Level3 February28,2017
FinancialassetsatFVTPL Cashandcashequivalents $84,351,132 $-- $-- $84,351,132Marketablesecurities 37,678,063 -- -- 37,678,063Accountsreceivable -- 2,039,425 -- 2,039,425Otherreceivables -- 1,494,703 -- 1,494,703Biologicalassets -- -- 652,047 652,047Long-terminvestments 22,942,592 -- 6,442,674 29,385,266 $144,971,787 $3,534,128 $7,094,721 $155,600,636Financial liabilities at amortizedcost Accountspayableandaccruedliabilities $4,612,462 $-- $-- $4,612,462
Currentportionofpromissorynotepayable 852,112 -- -- 852,112
Currentportionoflong-termdebt754,098 -- -- 754,098
Promissorynotepayable 568,075 -- -- 568,075Long-termdebt 6,615,588 -- -- 6,615,588 $13,402,335 $-- $-- $13,402,335
Level1 Level2 Level3 May31,2016
FinancialassetsatFVTPL Cash $16,472,664 $-- $-- $16,472,664Accountsreceivable -- 1,778,679 -- 1,778,679Otherreceivables -- 126,952 -- 126,952Biologicalassets -- -- 697,997 697,997Long-terminvestments 1,510,200 -- 50,000 1,560,200 $17,982,864 $1,905,631 $747,997 $20,636,492 Financialliabilitiesatamortizedcost
Accountspayableandaccruedliabilities $1,226,492 $-- $-- $1,266,492
FinancialriskmanagementTheCompanyhasexposuretothefollowingrisksfromitsuseoffinancialinstruments:creditrisk;liquidity;and,interestratepricerisk.
(a) Creditrisk
ThemaximumcreditexposureatFebruary28,2017isthecarryingamountofcashandcashequivalents,marketablesecurities,accountsreceivableandotherreceivablesandpromissorynotesreceivable.TheCompanydoesnothavesignificantcreditriskwithrespecttocustomers.Allcashandcashequivalentsare placed withmajor Canadian financial institutions. Marketable securities are placed withmajorCanadianinvestmentbanks.TheCompanymitigatesitscreditriskandvolatilityonitsmarketablesecuritiesthroughitsinvestmentpolicy,whichpermitsinvestmentsinFederalorProvincialgovernmentsecurities,ProvincialutilitiesorbankinstitutionsandInvestmentgradecorporatebonds.
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
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Total 0-30days 31-60days 60-90days 90+daysTradereceivables $2,039,425 $933,696 $552,209 $176,520 $377,000 45.8% 27.1% 8.7% 18.4%
(b) Liquidityrisk
As at February28, 2017, theCompany’s financial liabilities consist of accountspayable andaccruedliabilities,whichhascontractualmaturitydateswithinoneyear,promissorynotepayable,whichhasacontractualmaturitywithin15monthsandlong-termdebt,whichhascontractualmaturitiesoverthenext five years. The Companymanages its liquidity risk by reviewing its capital requirements on anongoingbasis.Basedon theCompany’sworkingcapitalpositionatFebruary28,2017,managementregardsliquidityrisktobelow.
(c) InterestratepriceriskTheCompanymanagesinterestrateriskbyrestrictingthetypeofinvestmentsandvaryingthetermsofmaturityandissuersofmarketablesecurities.Varyingthetermstomaturityreducesthesensitivityoftheportfoliototheimpactofinterestratefluctuations.
(d) Capitalmanagement
TheCompany’sobjectiveswhenmanagingitscapitalaretosafeguarditsabilitytocontinueasagoingconcern,tomeetitscapitalexpendituresforitscontinuedoperations,andtomaintainaflexiblecapitalstructure which optimizes the cost of capital within a framework of acceptable risk. The Companymanages its capital structure and adjusts it in light of changes in economic conditions and the riskcharacteristicsoftheunderlyingassets.Tomaintainoradjustitscapitalstructure,theCompanymayissue new shares, issue new debt, or acquire or dispose of assets. The Company is not subject toexternallyimposedcapitalrequirements.Management reviews its capital management approach on an ongoing basis and believes that thisapproach,giventherelativesizeof theCompany, is reasonable.TherehavebeennochangestotheCompany’s capital management approach in the period. The Company considers its cash and cashequivalentsandmarketablesecuritiesascapital.
28. Commitments
TheCompanyhasaleasecommitmentuntilDecember31,2018forrentalofofficespacefromarelatedparty.TheCompanyhasanoptiontoextendthisleasefortwoadditional5yearperiods.InJulyof2016,theCompanyterminated its leaseofgreenhouseandwarehouseproperty inconjunctionwith theacquisitionof the265TalbotStreetWestproperty.TheCompanyhasaleasecommitmentsfortheuseoftwomotorvehiclesexpiringSeptember2019andAugust2020intheamountsof$9,313and$19,599,respectively,annuallyandleasedofficespaceinTorontofor$4,500permonthuntilSeptember2017.Minimumpaymentspayableoverthenextfiveyearsareasfollows:
AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)
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PeriodsendingMay31,
2017 $2,028,5872018 11,026,7152019 47,9932020 21,9272021 3,267
$13,128,489The Company has purchase orders outstanding at February 28, 2017 related to capital expansion of$12,946,773,ofwhich$1,999,681areexpectedtobepaidinfiscal2017.
29. Subsequentevents
On March 9, 2016, the Company sold 500,000 shares held in Canabo Medical Inc. for net proceeds ofapproximately$340,000,whichweresubjecttoamandatory4-monthholdingperiod,expiringApril23,2017.TheCompanypurchased500,000sharesonMarch13,2017foranaggregatepurchasepriceof$370,700.OnMarch 18,2016, the Company revised a consulting agreement pursuant towhich the Company issued112,500commonsharesintoanescrowaccountinexchangeforfutureservicestobeprovidedbyagreenhouseconsultant.Thesharesaretobereleasedbytheescrowagentuponsuccessfulcompletionofcertaintime-basedandperformance-basedmilestonesbytheconsultant.IntheeventthatthemilestonesarenotachievedbyApril30,2018,theescrowedshareswillbereturnedtotheCompanytobecancelled.OnMarch20,2017,theCompanyexercisedits5,000,000warrantsheldinTetraBio-PharmaInc.(“TBP”)fortheaggregatepriceof$1,300,000.Theproceeds fromthewarrantexerciseare tobeused toadvance theclinicaltrialsbeingdevelopedinPhytoPainPharmsInc.,asubsidiaryofTBP.OnMarch22,2017,theCompany‘scommonsharesbegantradingontheTSX.TheCommonSharescontinuetotradeunderthesymbol“APH”.InconjunctionwithlistingontheTSX,thecommonshareswerevoluntarilydelistedfromtheTSX-VentureExchange.OnMarch27,2017,theCompanyenteredintoasubscriptionagreementwithCopperstateFarmsInvestors,LLCtopurchase6,000additionalmembershipunitsfor$3,000,000(USD).OnMarch30,2017,theCompanyexercisedits500,000warrantsheldinMassRootsfortheaggregatepriceof$450,000USD.OnApril4,2017,theCompanyannounceditwillinvest$25millionintoDFMMJInvestmentLtd.,anewspecialpurposeprivatecompanywhichwillacquireallorsubstantiallyalloftheassetsofChestnutHillTreeFarmLLCand subsequently amalgamate intoa subsidiaryof SecureComMobile Inc., apublic company listedon theCanadian Securities Exchange, as part of a business combination (the "Business Combination"). The funds,when combinedwith an additional $35million tobe raised in a brokeredprivateplacement ledbyClarusSecuritiesInc.,willbeusedforthelaunchofitsUSexpansionstrategyinanentitytoberenamedLibertyHealthSciences Inc. (“Liberty”) that will operate in the United States under the brand "Aphria USA". Once thetransactioniscompleted,theCompanywillownapproximately37.6%oftheissuedandoutstandingcommonsharesofLiberty.Aspartofthetransaction,Aphriahasagreed,uponcompletionoftheBusinessCombination,to licenceitsmedicalbrandtoLiberty, inexchangeforaperpetual3%royaltyonallsalesofmarijuanaandrelatedproducts. Further,Aphria has agreed, upon completionof theBusinessCombination, to licence itsgreenhouse growing intellectual property system to Liberty in exchange for additional common shares inLiberty.